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Tehran clutches at straws with black market claims

Tehran clutches at straws with black market claims

Faisal Faeq

July 25, 2019 00:30

A gas flare on an oil production platform in the Soroush oil fields is seen alongside an Iranian flag in the Gulf. (REUTERS/Raheb Homavandi/File Photo)

Before Iran started targeting oil tankers and facilities in the Gulf three months ago, the Iranian oil minister Bijan Zanganeh said that Tehran was able to sell oil through “unconventional” means to circumvent US sanctions. But how successful has that plan been and what evidence is there that the regime is successfully executing such a strategy?

“We have unofficial or unconventional sales, all of which are secret, because if they are made known America would immediately stop them,” the minister was reported as saying.

Although the US sanctions are still not entirely clear on condensate or petroleum refined products, tanker-tracking data shows Iranian crude and condensate exports fell further in June below 400,000 bpd. It is unclear though if all these barrels are condensate only, which is a kind of ultra-light crude oil that is produced from natural gas fields. Still this is a massive year-on-year drop from about 2.4 million bpd.

As for Europe, we don’t see any official crude oil exports from Iran for a third consecutive month. In May and June there were no direct sales to end-users excluding sales of condensate and shipments of crude destined to be held in floating storage.

Despite the tempting prospect of buying oil at a much cheaper price, European refiners are unwilling to risk buying crude outside the international financial system on the so-called grey market that Iran has been touting.

Export data shows that Iran exported around 2.4 million bpd in the first quarter of 2018, which a year later had fallen to about 1.3 million bpd.

By May, Iranian oil exports had fallen to 400,000 bpd.

So far, the US seems very close to forcing Iranian exports down to zero as most customers of Tehran have refrained from accepting any cargoes since late April.

We know Iran continues to fill available floating storage with its crude as it seeks buyers but we don’t know if the country has managed to sell anything beyond the 400,000 bpd that is reflected in official export data.

Tehran has pointed to the period between 2012 to 2015 when it was able to export more than one million bpd. However this was achieved largely through commodity swaps with China.

The country also claims it is able to offer steep discounts to tempt customers as it has done in the past.

But a “steep discount” when Brent is trading at $100 is not the same as a steep discount when it is hovering around $60.

The claimed “grey” market does not support any long-term solid sales agreements as these deals tend to be spot arrangements without insurance clauses or any form of buyer protection.

That is why most international oil companies and large refiners refrain from dealing in this murky market which relies on intermediaries and other forms of smoke and mirror.

Even if Tehran does manage to sell a few barrels here and there, it does not disrupt the overall narrative of a decaying economy.

• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq.

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